Couple discusses how to manage and merge their finances over a cup of coffee.

June 05, 2019

3 Principles for Managing Money as a Couple

Though many couples will talk at length about wedding plans, few are eager to have a conversation about managing finances together.

“One of the biggest problems that couples tend to have in their marriage is usually about money,"  said Patricia D. Hausknost, senior wealth planner for City National Bank. “So, you and your spouse really need to learn how to handle money as a married couple."

Whether or not you decide to open joint bank accounts, there are three key principles all couples should practice when managing money together.

Make Financial Decisions Together

Unfortunately, many couples find themselves disagreeing on spending habits on a regular basis.

To overcome this common challenge, experts tout the vital role of honest and clear communication about saving and spending.

“Couples can't make knowledgeable choices about their finances unless they're making honest and informed decisions together," said Jason Niell, national trust administration manager for City National Bank Trust and Estates.

“If all the choices are made by one party about where assets go and how money is spent and the other spouse doesn't fully understand these decisions — which we still see happening quite often — it may have little impact now, but it will likely have a big impact later in the relationship."

Furthermore, Hausknost noted that even if, as a couple, you decide to keep accounts separate and keep some daily spending to yourselves, each spouse needs to at least have an understanding of the overall allocation of family wealth and how it can be spent.

“I believe it's crucial that both sides understand what the overall financial situation is, and how much can be spent on major items that affect both parties - things like vacations, property and large home improvement projects," she said.

One way to avoid making a solo purchase that you later realize should have been discussed with your spouse first?

Set a dollar amount.

If a purchase is more than that amount, it should trigger a discussion.

Identify Your Individual and Joint Goals

As you and your partner delve into one another's finances it's a good idea — and may prevent future headaches — to try to map out communal goals.

“If your goals aren't aligned, you're each going to have to find a way to reconcile that," said Hausknost. “It's best to do that sooner rather than later so you can have the full picture of where you agree and disagree about life priorities."

For example, one of you may have a goal to own a home and not carry a mortgage into retirement. However, the other partner may not share that priority and may not be as conservative when it comes to spending.

With major purchases and important investment decisions being a common cause of arguments between spouses, it's important to discuss both long-term goals like your target retirement savings and also shorter-term goals such as vacations, a new car or home renovations.

You also need to get clear on how much you realistically need to save to reach your goal. If you are saving for a vacation home, for example, you need to discuss where you'd like to purchase that property, what the average list prices are and how much you'd be willing to spend. If you are willing to spend up to $1 million on a vacation property, and think you have the means to comfortably do so, but your spouse thinks $500,000 is more appropriate, it may cause tension if you wait to have that conversation down the road rather than from the start.

Once you've aligned on what your goals are and how much you would like to save for each of them, you should also agree on how much you want to save for each one on a monthly basis.

Then there's the question of debt.

Hausknost said that one of the most essential conversations to have about money, especially when creating a joint financial plan, is how much debt (especially student debt) you and your partner might each be bringing to the relationship. That's because debt can have a massive and long-term impact on life goals.

“One of the things that people don't talk about enough is debt. If you're going to merge your finances, you need to be fully aware of how much debt your partner comes into the marriage with," she said. “Especially nowadays, where many people have extensive student debt."

Couples need to consider if that debt will be the responsibility of the partner with the debt, or if it makes more sense to have both spouses contribute jointly to pay it off sooner. A professional wealth planner can help you navigate that decision.

Understand Each Other's Money Management Styles and Adapt

Though the initial impulse may be to simply combine your bank accounts after marriage, if you and your partner have different spending styles and economic priorities, it could be better to keep some accounts separate.

And that's not uncommon.

Hausknost noted that many couples she's worked with have money management styles that are different from their partner's.

The key is to uncover potential problem areas so you can work through them early on.

“During your relationship, you should have observed some of your spouse's money-related habits already," said Hausknost. “You'll start to notice things like which of you is the spender and which the saver. You may notice that your spouse uses their debit card for everything, which doesn't earn any cashback or points for future spending."

The couples who are most financially compatible usually say they have had conversations about money and worked to resolve their differences.

However, while some issues may be easier to resolve, others may require professional help.

Should You Seek Professional Help?

Whether or not you and your partner share the same priorities and money habits, it may be wise to consult a financial professional when deciding how to meld your money.

Research shows that couples who work with a financial advisor usually improve their communication about finances and their understanding of their own financial situation.

An expert can not only help you set financial goals but can also assist with things like property and tax considerations and implications, said Niell.

“The practice of combining your knowledge and your understanding of each of your different finances is one thing, but the actual physical merger of assets and ownership of certain assets is another," he said. “In the latter case a couple should definitely seek advice from professionals like a tax accountant and possibly an estate planning attorney. For some couples it might be better to file taxes separately and hold different properties or residences. These matters are complicated and best navigated with a professional."

If discussions about money have revealed some key differences between you and your spouse's - or soon-to-be-spouse's - budgeting and spending habits, a professional financial advisor can help.

“A wealth manager can act as a third-party arbitrator and can assist couples navigate their differences and get them more aligned," Hausknost said.

City National's wealth planners can help you determine how to best merge and manage your finances as a couple. Contact us to learn more.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

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